Posted by Steve Shanafelt at March 3, 2014 in Bitcoin Tech, Finance, NewsComments Off on Auroracoin becomes third largest virtual currency

Auroracoin

It has been just under a month since the launch of Iceland’s Auroracoin, and the virtual currency is already skyrocketing. According to cryptocurrency tracking website Coinmarketcap, Auroracoin’s total market capitalization is $799,926,174, making it the third largest virtual currency after Bitcoin and Ripple. The new virtual currency has knocked Litecoin, often referred to as the “silver to Bitcoin’s gold,” from the third-ranked spot it has held for much of the last two years.

While the market cap news is highly interesting, it does come with some caveats. For a start, Auroracoin is following a completely different launch strategy from other virtual currencies. Over half of the entire supply of Auroracoins have already been “pre-mined,” and the mining difficulty is already high enough to discourage speculators. Those pre-mined coins, meanwhile, are not in general circulation, but instead are reserved for the population of Iceland on March 25th. Every citizen of Iceland (pop. 330,000) will receive a so-called “Airdrop” of 31.8 Auroracoins, or roughly $1,780 at current value on Cryptsy.

Auroracoin was designed in large part to be an alternative to Iceland’s long-troubled domestic currency, the krona, which has fallen in value 99.5% relative to the U.S. dollar since 1960. During the events of the housing bubble and credit crash of 2007, Iceland’s entire economic system collapsed, leading to a new set of laws in 2008 with strict controls aimed at keeping the country’s $14 billion cash supply stable.

As Auroracoin creator Baldur Friggjar Óðinsson (a pseudonym, as no such person exists on Iceland’s registry) explains on the project’s homepage:

Five years ago, the government of Iceland imposed capital controls, following the collapse of a Ponzi inspired financial system that had issued far more Icelandic kronas than the nation could ever back up through its real economy. These controls were supposed to be “temporary”, but as with so many government actions, they remain in place to this day. … This means that the people of Iceland have, for the past five years, been forced to turn over all foreign currency earned to the Central Bank of Iceland. This means that the people are not entirely free to engage in international trade. They are not free to invest in businesses abroad. The arbitrary use of power this entails and the unsustainable debt of the Icelandic government has created uncertainty and risk in all aspects of commerce. This has had a crippling effect on foreign investment, as foreigners in general avoid investing in Icelandic enterprises, because of the risk of not being able to convert their investment back into dollars or euros.

Iceland’s government has been skeptical at best about Auroracoin. Speaking with TechCruch, Óðinsson noted an increasing tone of hostility from Iceland’s government and other authorities.

An influential government MP has called Auroracoin illegal and a ‘monetary scam.’ The Central Bank of Iceland has said that Auroracoin and cryptocurrencies are a ‘fringe activity’ and trade is possibly a violation of the capital controls.”

While the ultimate fate of Auroracoin won’t be known for some time, the fundamental concepts that drive it are extremely interesting. With over 300,000 people given instant access to a huge volume of digital currency, and being able to instantly trade it for both fiat and Bitcoin, the impact on the rest of the virtual currency world is likely to be substantial.